Interest Rates Rising
Struggling milk prices have farmers turning to increased lines of credit and larger operating loans. According to the Kansas City Federal Reserve’s Ag Finance Databook, not only are operating loans increasing, so are interest rates. Nathan Kauffman, assistant vice president and Omaha Branch executive, says as the banking sector waits for guidance from the Federal Reserve on interest rates, bankers have continued to gradually raise interest rates, with rates on loans used to finance operating expenses, farm machinery and livestock increasing 50 to 75 basis points since 2016.
“Although current rates remain historically low, interest rates on operating loans have increased about a full percentage point since the lows observed in 2015,” Kauffman says.
This fall, the Federal Reserve Bank alluded to another interest rate hike, but as the calendar draws closer to the end of the year, the central bank only has one more opportunity to make it happen in 2017.
“From the Federal Reserve’s perspective, [they] will track macroeconomic indicators to get a sense of what might be the right time to either slow an economy that appears to be overheating or to stimulate an economy that seems to be struggling,” Kauffman says.
The Federal Reserve has a dual mandate: to balance economic growth while ensuring price stability, he explains.
“We have started to see economic growth pick up and there appears to be some momentum. I think that’s part of the reason why we have seen several increases in interest rates over the last couple of years,” Kauffman says. “On the price stability side, inflationary pressures have remained relatively low.”